Joint Costs – What Your Organization Needs To Know

Posted by Christina K. Bell

Has your organization ever sent out informational materials which have included an appeal for contributions such as a newsletter which includes a solicitation for donations?

Does your organization have a website that provides information about programs along with a section for on-line donations?

Did you know – unless three very specific criteria are met under generally accepted accounting principles – the costs associated with these activities are to be solely allocated to fundraising, even if a portion of these costs are clearly identifiable with a program activity?

Cost associated with the above activities are defined as Joint Costs since they relate to both a program activity and a fundraising activity. However, in order to be allocated between both program and fundraising on your statement of functional expenses, rather than solely to fundraising, three very specific criteria must be met as defined in the accounting and audit world by FASB ASC 958-720 (formerly SOP 98-2). Simply put they are as follows:

  1. Purpose – The material must call for a specific action by the recipient that will help accomplish the nonprofits mission. For example, if the mission of your nonprofit is to assist pregnant women in preventing premature birth, did the materials encourage expected mothers to get regular prenatal checkups?
  2. Audience – The audience must be selected based on its need of the called upon action and/or its ability to take the action. The audience cannot be chosen based on prior donors or on the ability or likelihood of the recipient to contribute.
  3. Content – Information describing the nonprofit, it causes, and how contributions will be used does not satisfy the content criteria. The content must call the recipient to make a specific action and that action must aid the nonprofit in accomplishing its mission.

If all three criteria are met, your organization should charge those costs identifiable with program functions to program services and those costs identifiable with fundraising efforts to fundraising. This will improve the allocation of expenses on your organization’s Statement of Functional Expenses compared to if 100% of these costs were allocated to fundraising.

As a result, it is important that your organization examine all activities which may result in joint costs before implementing them to ensure the above criteria can be met and if not, what affect will it will have on your organization’s Statement of Functional Expenses.

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